It’s practically impossible to make any savings if you are always living pay check to pay check or worse, having to supplement your monthly income with debt in order to make ends meet.
This means that you lack the money to save and invest or you are stuck in an endless cycle of debt and chances of you growing your wealth for financial security are close to nil. Either way, you are making costly financial mistakes that negatively impact your life and could see you suffer financial ruin should you lose your regular income or have an emergency situation.
That needs to change immediately. You need to start making your money work for you, and the only way to do that is to track your expenses and be accountable to yourself such that you know where every penny goes.
Conduct a lifestyle audit
A lifestyle audit is a fantastic way to examine whether you are living beyond your means or not. Make a list of all your expenses and liabilities like rent, food bills, utility bills, miscellaneous expenses, and loan repayments. This gives you a clearer picture of the state of your finances.
Living within your means
The simplest way to look at your finances is look at your expenses against your income. If the expenses exceed the income then that is a clear indication that you are punching above your financial weight, and that needs to stop.
For a secure financial future, you should follow the 50-20-30 rule. Using this rule for guidance, not more than 50% of your after-tax income should go to your essential expenses like housing, food, utilities, transportation and debt repayment. Under this, you shouldn’t be spending more than 30% of your income on rent.
20% of your income should go towards your savings, which helps you prioritize your savings instead of saving what’s left after your expenses. The remaining 30% should go towards funding your lifestyle for things like travel, cable TV subscription, social functions, and all other luxuries that you can live without.
Smart ways to save on your budget
Having made a budget to suit your income, you can further save more money on it without making foregoing the items you love.
For instance, you can save on your grocery bills by starting a small kitchen garden to meet your demand for fresh produce. All you need are a few Gardening Tips and you are good to go.
You can save on your utility bills like water and electricity by being smart about your consumption. Use more energy efficient electrical appliances and plug your sink when doing dishes instead of leaving the water running.
Cut down on unseen expenses
Frequent withdrawals at the ATM and using your credit cards to pay for stuff come with transaction fees which make small dents on your income every time. You can save on this by making lump sum withdrawals to last you for a week or two and always making cash payments whenever you can.
Pay your credit card debt on time since late payments attract hefty fines and also affects the cost at which you borrow in future.